ENFORCEMENT:

Texas inspectors use their strongest punishment against paperwork violations

Mike Soraghan, E&E reporter

EnergyWire: Wednesday, April 4, 2012

Oil and gas inspectors have a strong but rarely mentioned tool to use against wayward drillers -- they can shut down their wells until they comply with the rules. Some say it's more effective than hitting companies with fines.

But in Texas, which imposes the punishment most often, regulators are more likely to halt production for paperwork reasons than for health, environmental or safety violations.

In 2010, Texas regulators shut down, or "severed," more than 9,000 oil leases and gas wells, according to records obtained by EnergyWire through a public information request. Of those, 2,459 were severed for some sort of production violation, a late or erroneous production report, or "overproduction."

Less than 10 percent of the total, 833, were shut down for "field rule violations" -- problems found during inspections.

Texas well shutdowns in fiscal 2009-10

Reasons for 19,696 well shutdowns in two years. Data courtesy of Texas Railroad Commission.

John Hanger, who ran the Pennsylvania Department of Environmental Protection as Marcellus Shale drilling boomed in the state, said shutting down a well was one of his strongest tools against wayward operators, maybe the strongest.

"What got company's attention was not the fines, it was plugging a well," Hanger said in an interview. "Those orders cost companies many millions of dollars when they couldn't drill or frack a well."

But using severances for production so much more often than environmental violations creates confusion, said Scott Anderson, a senior policy adviser at the Environmental Defense Fund who previously served as executive vice president of the Texas Independent Producers and Royalty Owners Association (commonly called TIPRO).

And such confusion can undermine confidence in state regulators, he said, such as the oddly named Texas Railroad Commission that regulates oil and gas in Texas (it has no authority over railroads).

Commission spokeswoman Gaye McElwain said the reason more wells are shut down for production than safety problems is that production severances are computer-generated and can look at every well monthly.

"A field-generated severance is the result of a lease inspection," McElwain said in a set of emailed responses to questions from EnergyWire.

Railroad commissioners and top officials have often pointed to severances when accused of lax enforcement. In 2010, a legislative board called for the commission to be "fundamentally restructured," in part because of its reluctance to enforce its rules. In response, Commissioner Michael Williams pointed to severances as a method of deterring violations.

"The power and use by Railroad Commission field staff of lease severances is a valuable tool to enforce our rules, deter future violations and bring operators into quick compliance, without the delay and expense of an enforcement hearing," Williams wrote to the board, the Texas Sunset Advisory Commission.

In an interview last year about the Railroad Commission's enforcement record, then-commission executive director John Tintera said 8,487 leases were severed in 2009 (Greenwire, Nov. 14, 2011).

"That has a very strong impact," Tintera said.

The records show that there were 893 severances in 2009 for violations found during inspections.

McElwain noted that the commission has authority to fine operators up to $10,000 for violating the rules against producing or transporting oil and gas from severed wells. Asked how many such fines were imposed in 2009 and 2010, she said the information was unavailable.

Severance records

Of the nearly 20,000 severances issued during the two fiscal years -- 2009 and 2010 -- analyzed by EnergyWire, about a quarter, 5,520, were for production reasons, while 1,726 were shut down for problems found during inspections.

The largest share of severances, more than 6,000 during those two years, were imposed for failure to file a form, H-15, showing that an older well has passed a mechanical integrity test.

About a fifth of the roughly 20,000 severances issued during fiscal 2009 and 2010 remained unresolved at the end of that period. In fiscal 2009 and 2010, 580 "field rule violations" list no "resolved" date.

Companies with the most Texas wells shut down in fiscal 2009-10

Data courtesy Texas Railroad Commission.

Severances hit all different kinds of companies. The company that had its wells severed most in Texas during the time period analyzed by EnergyWire was Endeavor Energy Resources, a small, independent operator. But in fourth place was XTO, which was acquired by Exxon Mobil Corp. in 2010 and is a major player in the shale boom.

Chesapeake Energy Corp. was eighth. At least four of its severances from that time period remain unresolved, and each of those was for a violation of the rules. At least one of XTO's remains unresolved, for overproduction.

Many states have the authority to shut down wells, though they use it far less than their counterparts in Texas.

In Oklahoma, it is not called "severing." Inspectors there call it "red-tagging."

According to state records, Oklahoma inspectors shut down 50 wells in 2009.

New Mexico inspectors do not have the authority to stop production wells, though they are authorized to shut in wastewater injection wells that fail. In Louisiana, the Office of Conservation has the authority to shut in wells, but state officials say they are more likely to order proceeds from sales to be held in escrow or suspend an operator's authority to transport oil.

Pennsylvania's Hanger implemented what might be the best-known example of shutting down wells when he ordered Cabot Oil & Gas Corp. to shut down its wells in Dimock, Pa., after nearby water wells blew up and water turned cloudy and smelly in 2008.

Cabot continues to drill elsewhere in the state, but Pennsylvania Department of Environmental Protection officials say they have not cleared it to resume in the Dimock Township.

In 2007, the Pennsylvania DEP banned Synd Energy, which drilled shallow gas wells rather than Marcellus Shale wells, from ever operating in the state again, along with its owners. State officials say that came after repeated waste violations, wetlands issues, altering pressure gauges on wells and gas migration issues.

More recently, DEP asked Carrizo Oil & Gas Inc. to "stand down" in February after a valve failure released waste fluid onto one of its wellpads near Montrose, Pa.

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